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Proof of Stake Vs. Proof of Work: Which One Is ‘Fairer’?


Bitcoin (BTC) and many of the original cryptocurrencies were born as pure PoW systems. Proof of Stake was first pioneered in 2013 by Peercoin, a project that exists to this day. Peercoin’s contribution to the popularity of PoS is likely dwarfed by Ethereum (ETH) and its goal to transition from PoW — which has turned out to be a very long journey. Projects such as Cardano (ADA) avoided PoW entirely, deciding on PoS after using a formal approach to assess consensus mechanisms. The Bitcoin and Monero (XMR) communities remain some of the staunchest proponents of mining and Proof of Work.

What is a consensus algorithm?

As computing power is directly proportional to electricity usage, Bitcoin is secured directly by a fundamental physical quantity — energy. Under Proof of Stake, the network secures itself through the commitment of a stake — a certain amount of capital in the form of the network’s own tokens. Its security is meant to be derived directly from the perceived economic value of the network — how expensive it is to purchase a majority stake. But PoW networks also have a close correlation between economic value and security. Miners receive coins as a reward, which means that the higher the value of the coin, the more money they make. New miners are incentivized to add more hardware and spend more energy to receive their share of the rewards — which increases security. Over time, the profit for each individual miner trends toward an economic equilibrium dictated by electricity prices. As a consequence, the amount of electricity dedicated to mining depends on the coin’s emission rate and market capitalization, while it is largely decoupled from the network’s performance or activity. Many PoS proponents see this as the biggest issue of PoW. Read More...

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